With fast moving trends and shifting consumer behavior, the retail industry must continuously adapt to stay ahead. To do so, retailers must be backed by resilient suppliers, and to ensure resilience, retailers need early indication of risk and increased supplier transparency.
At RapidRatings, we know the best indication of supplier resilience is financial strength. The retail industry depends on constant flow of goods. A financially unstable supplier can disrupt this flow by defaulting on deliveries, struggling to procure raw materials, or even going bankrupt. Companies that fail to identify financial risks or react too late can face a plethora of consequences: diminished bottom line, impacted brand reputation, or loss of customers going to competitors.
The cost of missing risk financial risk indicators is too high, especially now as retailer suppliers are increasingly vulnerable against current market conditions. Inflation resulting in rising material costs, higher-for-longer interest rates impacting capital expenses, and tariffs now causing geographic risks and cost shocks are all impacting the financial health of both public and private suppliers.
As a result, retail bankruptcies have been increasing. Forever21, for example, filed for bankruptcy recently after struggling to compete against online rivals and facing economic challenges that impacted both suppliers and core consumers. AtHome, faced similar challenges after decreased demand and tariffs imposed by the U.S. government blundered their operations and ultimately led to its demise. Another once big player in the retail space, Claire’s, is on the brink of bankruptcy, citing tariffs, high costs of debt, and weakening sales as the reason for deterioration. Following financial health analysis on Claire’s, RapidRatings Executive Chair James Gellert told Bloomberg there was “no realistic path forward” for the company.
As well-known large retailers are failing, small private suppliers are facing even greater struggles. While downstream companies may have more flexibility to absorb rising costs, small suppliers are forced to find alternatives such as raising prices, reconfiguring their supply chain, or taking out capital at a time when it’s costly. As costs are squeezed the impacts take hold, suppliers like Design Group Americas are forced to go out of business creating industry-wide ripple effects.
Though today’s factors are increasing risk, it’s not all doom and gloom in retail. Retailers like Dollar General have been able to adapt to volatility and succeed in a challenging marketplace. So, what makes them different? Strong financial health, as reflected in their Financial Health Rating.
Strong financial health allows companies to be agile against emerging risk where weaker companies will likely give way. Every retailer is grappling with similar challenges such as forecasting and inventory management. But for companies like Dollar General, their strong financial standing allows them to absorb external shocks and remain stable, even in turbulent times.
No company is safe from disruption risk.
However, retailers that understand the importance of monitoring the financial health of suppliers to protect inventory flow and safeguard brand reputation will be resilient against today’s conditions. Our Financial Health Ratings allow greater transparency into supplier stability, especially in private companies. Even as tariffs, inflation, interest rates, and policy shifts impact the industry, there is opportunity ahead. Gathering tools and data that aid in responding to ripples in the supply chain will allow retailers to thrive.
With RapidRatings, retailers can identify at-risk suppliers, prevent disruption during peak periods, and stay ahead in an intensely competitive market.
